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Study Finds Misleading HECM Marketing

GAO releases report on reverse mortgages

June 29, 2009

By MortgageDaily.com staff


A new government report indicated that counselors for reverse mortgages often fail to meet all required counseling requirements. The report also highlighted concerns about reverse mortgage advertisements.

The General Accountability Office conducted a study on the costs, risks and benefits of home-equity conversion mortgages. The review was prompted by concerns over consumer protections.

The GAO said it reviewed program rules and performed limited tests of the U.S. Department of Housing and Urban Development's internal controls. It also interviewed borrowers and people from the industry, HUD and nonprofit organizations.

The agency, which acts as the investigative arm of Congress, analyzed consumer complaint data and examined misleading HECM marketing and ads. It found that some claims by originators were potentially misleading because of inaccurate or incomplete claims. Questionable sales tactics were also identified.

"For example, the claim of 'lifetime income' is potentially misleading because there are a number of circumstances in which the borrower would no longer receive cash advances," the report stated.

The report recommended that HUD, the Federal Trade Commission and federal banking regulators take steps to strengthen oversight of marketing.

The GAO also studied the sale of unsuitable products and found that while HUD is responsible for implementing the provision of the Housing and Economic Recovery Act of 2008 intended to restrict inappropriate cross-selling -- it is still only in the early stages of developing regulations.

Another area of concern was the inability of HUD's internal controls to adequately ensure counseling providers are complying with HECM counseling requirements. The GAO said it conducted 15 undercover HECM counseling sessions and found that none of the counselors covered all of the topics required by HUD -- though they generally conveyed accurate and useful information.

"For example, seven of the 15 counselors did not discuss required information about alternatives to HECMs," the report said. "HUD has several internal controls designed to ensure that counselors convey the required information to prospective HECM borrowers, but the department has not tested the effectiveness of these controls and lacks procedures to ensure that records of counseling sessions are accurate"

Some of the counselors allegedly overstated the length of the counseling sessions in HUD's records.

The study highlighted high insurance and origination costs that accompany reverse mortgages.

The GAO said its recommendations are "designed to address potentially misleading marketing of HECMs and improve HUD's oversight of HECM counseling providers."

Federal banking regulators reportedly agreed with the GAO's findings, while HUD and the FTC didn't comment.

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